SNAPSHOT OF FHA REQUIREMENTS
ADVANTAGES and BASIC INFORMATION
•Ø FHA insured mortgages are conforming loan products. As such, each loan is evaluated individually and may be subject to additional requirements and documentation.
•Ø NOT Credit Score driven for approval, interest rate, discount points, or financing costs
•· Credit scores are considered in AUS loan analysis/recommendation.
•· Credit (traditional or non-traditional) must be acceptable. Borrower cannot have exhibited a disregard for credit obligations. Derogatory credit must be satisfactorily explained/documented by borrower.
•· Credit history is not required. However, alternative (non-traditional) credit must be attempted/documented.
•· Credit requirements are the same regardless of the loan program.
•· Only 2 year wait from Chapter 7 Bankruptcy Discharge Date. Borrower must have re-established satisfactory credit or chosen to not incur new debt after the bankruptcy. Circumstances leading to the bankruptcy must be explained and not expected to reoccur. Borrower may be eligible after 1 year of satisfactory pay-out, along with permission from trustee, in an active Chapter 13 Bankruptcy.
•Ø FHA loans are available to all qualified borrowers.
•· No income limits; Not restricted to first time homebuyers
•· Can refinance from conventional (conforming or non-conforming) to FHA.
•· Resident or Non-Resident Legal Aliens are eligible: Must have a valid SSN, valid Employment Authorization Document (EAD), reasonable expectation they will be permitted to remain in the U.S. for at least the first 3 years of the loan, and meet all other qualification requirements.
•Ø Liberal qualifying ratios of 31/43% for existing properties, and 33/45% for properties documented to meet the 2000 International Energy Conservation Code (IECC), as clarified in Mortgagee Letter 2005-21.
•Ø Liberal rules for non-occupant co-borrowers.
•Ø Standard 1.5% Up-Front Mortgage Insurance Premium (UFMIP) for most loans, including 97% LTV loans. UFMIP may be financed into the mortgage.
•Ø Monthly mortgage insurance premiums (MIP) is automatically discontinued after 5 years, or when 22% (78% LTV) has been invested in the loan, whichever is later.
•Ø High ratio loans permitted without additional qualification requirements or increased mortgage insurance premiums.
•Ø Automated Underwriting System (AUS) loans are acceptable. Must be scored by the FHA TOTAL Scorecard, via an AUS that can communicate with TOTAL. Data integrity must be supported by file documentation.
•Ø Reserves are not required
•· Reserves are considered in AUS loan analysis.
•· Reserves may be needed as a compensating factor for excessive ratios on manually underwritten loans.
•Ø Flexible source of funds, which may result in no "out-of-pocket" cash by the borrower.
•· Gift funds from non-profit entity may be used for entire downpayment and allowable financing costs.
•· Gift funds (cash or equity) from relatives may be used to pay debts, as well as downpayment and allowable costs. Borrowers may receive cash back at closing from the gift.
•· Secondary financing from a governmental entity. Combined Loan-to-Value (CLTV) cannot exceed 100% of the cost to acquire.
•· Loans from family members may be unsecured or secured by the property being purchased.
•· 60% of 401K/IRA accounts can be considered as assets. Evidence of redemption is required if funds are needed for closing on a manually underwritten file
•· Borrowers checking, saving, money market, or investment accounts. Significant deposits must be satisfactorily explained and/or documented.
•· Sweat Equity may be considered and may be gifted by relatives if properly documented.
•· Premium Pricing may be used to pay borrower's reasonable/customary financing costs. The Good Faith Estimate and HUD-1 Settlement Statement must itemize each fee paid by premium pricing.
•· Cash saved at home (with the required budget analysis documented).
•· Private Savings Clubs: Must document the method of savings, the distribution, and the borrower contributions.
•Ø Some debts may be excluded from the ratios.
•· If deferred for 12 months from closing date (i.e., student loans); however, significant payments scheduled to begin within the first 3 years of the mortgage must be carefully considered during underwriting/approval.
•· 401k/IRA loan payments
•· Contingent Liability. Conclusive evidence from the debt holder that there is no possibility the debt holder will pursue debt collection against the borrower should the other party default on payments, along with a 12 month history of on-time payments, is required.
•· Debts with less than 10 months remaining, as long as the required monthly payment will not impact the borrower's ability to make the mortgage payments.
•Ø Documentation of subordinated IRS Tax Lien is usually not required.
•Ø Standard credit and property documentation requirements.
•· Reverse Mortgage/Home Equity Conversation Mortgage (HECM) does not require credit underwriting.
•· Most streamline refinances do not require credit underwriting.
•· Manufactured housing loans have additional property requirements.
•· One-Year ARMs are underwritten at 1% higher than note rate if LTV is 95% or higher.
•Ø Variety of loan products available.
•· Proposed construction (including Construction-to-Permanent and Building on Own Land), under construction, existing less than 12 months, and existing more than 12 months.
•· 203k Substantial Rehabilitation and Streamline(k) Limited Repair programs.
•· HECM: Does not require a downpayment or credit underwriting.
•· Refinances: Cash Out, No Cash Out, Streamline (with or without an appraisal).
•· Energy Efficient Mortgages (existing or new construction); may be combined with the Energy-Related Weatherization program if the EEM is insufficient to cover all required items.
•· US Veterans loan program (3% investment not required)
•· Manufactured Housing
•· Adjustable Rate Mortgages: One-year and hybrid.
•· Disaster Loans. Borrowers are eligible for 100% financing; 3% statutory investment NOT required.
•Ø Required repairs and improvements may be eligible for inclusion in the mortgage for purchases and "No Cash-Out" refinances.
•Ø Seller/other interested third parties (i.e., lender or realtor) can contribute up to 6% of the sales price toward the borrowers' costs. Closing costs, pre-paid expenses (property taxes & hazard insurance), temporary interest rate buydown funds, UFMIP, discount points, etc.
•Ø Closing costs and pre-paid expenses may be eligible for inclusion in a streamline refinance without an appraisal.
•Ø Cash Out Refinance eligible up to 85% (95% if criteria specified in ML 2005-43 is documented as met) of the appraised value. Borrower must qualify for loan and must provide the purpose of the cash-out refinance.
•Ø Borrower cannot pay excessive fees for the property area (fees must be reasonable/customary).
•Ø FHA appraisals are now compatible with conventional and VA appraisals, permitting borrowers to choose the best product for them without additional fees.
•Ø Borrower must be informed of their right to, and encouraged to obtain, a home inspection.
•Ø Borrower may be eligible for a refund of a portion of the UFMIP if they do an FHA-to-FHA refinance.
•Ø Borrowers must be offered LOSS MITIGATION options before their FHA insured loan can be foreclosed.
•Ø Mortgage Limits. Statutory limits apply, and are assigned to MSAs (metropolitan statistical area).
•Ø Condominium projects must be approved. Full complex or Spot Loan Approval.
•Ø All borrowers must have a valid and verifiable SSN.
•Ø All income used in determining loan qualification must be verifiable and stable.
•Ø All assets used in determining loan qualification must be verifiable and from an acceptable source.
•Ø A two-year work history is required for all borrowers whose income is used for loan qualification. College or trade school education may be substituted for work history when copies of the transcripts are obtained.
•Ø Non-purchasing spouse cannot take title to the property, unless the state law requires it for a valid first lien. Non-purchasing spouses are usually required to execute the security instrument to ensure a valid first lien position for the FHA insured mortgage.
•Ø Purchase transactions require a 3% investment (downpayment) by the borrower. This is statutory and is tied to the LTV requirement during mortgage calculation. 203h Disaster loans, and loans to veterans, are exceptions to this law.
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